Economists expect Singapore to make strong recovery in 2021/22 despite pandemic resurgence risks

[SINGAPORE] Backed by targeted government support and external demand, Singapore's economy has rebounded since the second half of 2020, and is now expected to grow "strongly" this year and next, economists from the Asean+3 Macroeconomic Research Office (Amro) said Monday (Nov 8).

After contracting by 5.4 per cent last year, Singapore's GDP is forecast to expand by 6.5 per cent this year and then moderate to 4 per cent in 2022. The higher levels of growth will be driven by robust employment and domestic spending and external demand over the shorter term, and a recovery in tourism and hospitality over the longer term, the report said.

The outlook is positive despite persistent supply-chain disruptions, inflation and the risk of a resurgence in Covid-19 cases, said Amro economist Justin Lim.

He said any renewed waves of infections in Singapore and overseas as well as delays in vaccine roll-outs in the regional economies are key risks to Singapore's growth, as further lockdowns would have an impact on domestic consumption and production. "The recovery in Singapore's high-contact services sectors will be impeded, with knock-on effects on the labour market," he added.

The other risk is the resulting adverse effects of renewed lockdowns and restrictions on both households and businesses, particularly those in the food and beverage and retail sectors.

That, in turn, could have a negative impact on non-performing loan ratios at the local banks. Non-performing loans are amounts borrowed that are repaid late or unlikely to be repaid at all. "Rising financial distress among the more vulnerable businesses in Singapore and abroad can lead to a deterioration in banks' asset quality, although the increase in banks' provisions and strong capital buffers are expected to help mitigate the rising credit risk," the economists said.

Any further disruptions to global supply chains can also dampen exports to Singapore, which relies heavily on external trade.

So far though, disruptions to Singapore's trade as a result of bottlenecks in the supply chain have been minimal. More ships have been diverted to Singapore due to port congestion elsewhere, but the country has done well in managing this, "such as expanding its port capacity in Tuas and opening the port ahead of schedule", Mr Lim said.

He conceded that persistent supply-chain disruptions and delays in deliveries are "not ideal" for Singapore in the long term. Amro chief economist Khor Hoe Ee noted that already, higher prices can be expected going forward: "Inflation has picked up, in line with a rebound in oil prices and strengthening economic activity."

Consumers can also expect to see dearer prices in some industries as employers attempt to share the cost of higher wages, he added.

In terms of drawing in foreign investments, "Covid-19 has not changed the attractiveness of Singapore as a base for setting up company headquarters and expanding regionally. Capital inflows remain strong and investors are keen to invest", Dr Khor said.

While the Monetary Authority of Singapore's recent move to tighten monetary policy to stabilise prices was "earlier than expected", he said this remains "accommodative" at current levels and should remain so to complement fiscal policy.

Amro suggests that the authorities remain flexible and to be prepared to extend further fiscal support in the event of a resurgence in infections or if growth falters.

It is also essential for employers to continue raising workforce productivity and reskilling displaced workers. "Ensuring a right mix of local and foreign workers by taking into consideration talent gaps and labour supply conditions would also enhance Singapore's competitiveness," it said.

THE STRAITS TIMES